Cars and Drivers

Why Tesla Shares Plunged 12%

Tesla Motors Inc. (NASDAQ: TSLA) shares took a one-day, 3% beating, as an analyst questioned profit margins on its Model X. However, the fall is just the tip of an iceberg. The stock of the electric car company has fallen more than 12% this year, while the S&P has risen almost 3%. Investors have lost confidence in a company praised for innovation. At the core of the challenge is that too many other companies have started to aggressively chase the wildly innovative company.

While Tesla has championed the electric car model, and it has even set procedures so that its vehicles always will be within range of a charging station, primary among concerns about its future is competition, particularly at the low end of the price market. Tesla has promised a car that will retail for about half of the $70,000 it charges for its Model S. However, that day apparently is years away. In the meantime, companies from BMW to General Motors Co. (NYSE: GM) have released, or plan to release, what they define as electric cars of their own, although some have tiny gasoline engines to extend their ranges. It is too early to know if the consumer cares whether a car is purely all-electric.

ALSO READ: How Often Will the Tesla Self-Driving Car Crash?

Tesla’s other major advantage has been an unmatched level of quality. Research firms from Consumer Reports to J.D. Power have praised its manufacturing, safety and bevy of features. However, again, the consumer may think cars that are excellent but not perfect are good enough. Luxury brands led by Lexus are rated nearly as well as Tesla. Some have huge dealer networks and remarkably large marketing budgets. Lexus makes several hybrids, too. It remains unclear whether hybrid engines are “good enough” for consumers who want cars that are fuel efficient and therefore “green.”

Tesla founder Elon Musk, like other entrepreneurs, may have created a product that is so good that the rest of the auto industry has set plans for direct competition within a few years, or less. Profit margins are not at the core of Tesla’s problem. The pursuit of its success is.

ALSO READ: Tesla Fires China Staff as Sales Falter

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